What's the best way to do clothing in character modelling?
All the ways are valid, but there are advantages/disadvantages to all of them and so it depends which is the best one:

Simulating the cloth on a rigged character:


Blender cloth physics are slow (single-threaded) and do not offer the best settings, so it's best to do the simulations in some other software (Qualoth, Marvelous Designer, etc.) and bring them back into Blender as .mdd files. In Blender there is also a way to transfer a low-resolution simulation to a higher-resolution mesh to save some time: Ways to have one mesh control another?
Such simulation results in accurate wrinkles, accurate cloth fit and deformations. The fabric slides over the character etc. When the animation is fast, there can be artifacts - so the animation has to be sometimes composed with multiple of simulations and some cleanup work. It is time demanding.
The animator has usually poor preview of how the clothing behaves, and he must wait for it ()


Modeling the cloth separately and rigging it:


The cloth can be relatively fast sculpted, and rigged with extra set of bones so the cloth can slide over the character. The animator has full control over the cloth bones (some can be rigged with constrains), which is both advantage and disadvantage, as he has more work with it. The more bones the cloth has, the better deformations can be achieved, but small wrinkles and a look of a simulation is very hard to do even with blend-shapes.


Separately rigged cloth with parts simulated (both upper methods combined).


Probably the best option to leave some artistic control and have the fidelity of simulation. Also most game engines are only simulating parts of clothing.


Rigging the cloth with the character armature:


The worst deformations, as the cloth cannot slide much over the character. There can be some basic wrinkling with corrective shape-keys (and sliding), so the animation doesn't look like a character completely made out of play dough.
This is fastest to setup, but usually usable only on background characters. Also good for fast iterative approach to setup the final animation and then refine the cloth and deformations with shape-keys exactly for that animation and camera angle.